Chapter 27: Earning Per Share PAS 33 However, if the preference share is noncumulative, increased by the number of ordinary
ncreased by the number of ordinary shares that would
The earning per share figure is the amount
attributable to every ordinary share outstanding during
the period.
- EPS pertains only to OS
Ordinary share is an EQUITY INSTRUMENT that is
subordinate to all other classes of equity instruments.
Two presentations of earning per share
1. Basic Earning per share
2. Diluted Earning per share
Entity shall present on the face of the income
statement BEPS AND DEPS for income or loss from
continuing operation and discontinued operations.
Basic Earning Per Share
BASIC EPS = Net Income / Ordinary share
outstanding
The net Income is equal to the amount after deducting
dividends on preference share.
Cumulative - the preference dividend for the current
year only is deducted from the net income, whether
such dividend is declared or not.
Noncumulative - the preference dividend for the
current year is deducted from net income
WEIGHTED average should be used as denominator
if there is a significant change on OS capital during the
period.
The share dividends or share split shall be treated
retrospectively as a change from the date the original
shares were issued.
BASIC LOSS
If the preference share is cumulative, preference
dividend is added to the net loss to get total loss to the
ordinary shareholders.
the preference dividend is ignored because presumably
there is no declaration since there is a net loss. In such
a case, the basic loss per share is determined as
Diluted Earnings Per Share
The computation of diluted earnings per share is based
on the assumption that additional ordinary shares are
issued.
a. Conversion of convertible bonds payable into
ordinary shares
b. Conversion of convertible preference shares into
ordinary
c. Exercise of share options
Convertible bonds payable
In computing diluted EPS, adjustments shall be made
both to net income and to the number of ordinary
shares outstanding.
The net income is adjusted by adding back the
interest expense on the bonds payable, net of tax.
The number of ordinary shares outstanding is
increased by the number of ordinary shares that would
have been issued upon conversion of the bonds
payable.
If convertible bonds are outstanding during the entire
year, it is assumed that the conversion takes place at
beginning of the year.
Convertible preference shares
If there are convertible preference shares, the
computation of diluted earnings per share also
assumes that the preference shares are converted into
ordinary shares.
Accordingly, the net income is not reduced anymore
by the amount of preference dividend.
The number of ordinary shares outstanding is
have been issued upon conversion of the preference
shares.
The conversion is assumed to be made at the
beginning of the year because the convertible
preference shares are outstanding during the entire
year.
Share options
Share options are granted to employees enabling them
to acquire ordinary shares
share options have no cash yield but they derive their
value from the right to obtain ordinary shares at a
specified price that is usually lower than the prevailing
market price.
Share options are dilutive if the exercise price or
option price is less than the average market price of
the ordinary share
Treasury share method
Share options are included in the EPS computation
through the treasury share method.
However, this method does not imply that the entity
has entered into a transaction to purchase treasury
shares.
The treasury share method is used to simplify the
computation of incremental or potential ordinary
shares that are assumed to be issued for no
consideration as a result of share options.
a. The share options are assumed to be exercised at
the beginning of the current year or at the date the
share options are issued during the current year.
b. The proceeds from the exercise of the share
options are assumed to be used to acquire treasury
shares at average
market price.
c. The number of incremental or potential ordinary
shares is equal to the option shares minus the
assumed treasury
shares acquired.
CHAPTER 30: FIRST TIME ADOPTION OF PFRS
A first time adopter is an entity that presents for the
first time its financial statements in conformity with
Philippine Financial Reporting Standards.
first time adopter - when an entity makes an explicit
and unreserved for the first time, when statement that
its general-purpose financial statements comply with
Philippine Financial Reporting Standards.
First PFRS financial statements
The first PFRS financial statements are the first
annual statements in which an entity adopts PFRS by
an explicit and unreserved statement of compliance
with PFRS.
Financial statements presented by an entity in the
current year would qualify as first PFRS financial
statements under the following conditions:
1. When an entity presented its most recent previous
financial statements:
a. Under national GAAP inconsistent with PFRS in all
respects.
b. In conformity with PFRS in all respects but these
statements did not contain an explicit and
unreserved statement of compliance with PFRS.
c. Containing an explicit statement of compliance with
some but not all PFRS.
d. Under national GAAP with a reconciliation of
selected figures to amounts determined under PFRS.
2. When an entity prepared financial statements in the
previous period under PFRS but the financial
statements were for internal use only.
3. When an entity prepared financial statements in the
previous period under PFRS for consolidation
purposes without preparing a complete set of financial
statements.
4. When an entity did not present financial statements
in theprevious period.
Date transition to PFRS
The date of transition to PFRS refers to the beginning
of the earliest period for which an entity presents full
comparative information under PFRS in its first PFRS
financial statements.
The date of transition to PFRS depends on two factors,
namely:
a. The date of adoption of PFRS
b. The number of years of comparative information
that an entity decides to present together with the
financial statements in the year of adoption
An entity presented its most recent financial
statements under previous GAAP on December 31,
2021.
The entity decided to adopt PFRS on December 31,
2022 and to present a one-year comparative
information for 2021.
The beginning of the earliest period for which the
entity should present full comparative information
would be January 1, 2021.
In this case, the date of transition to PFRS is January
1, 2021 and the opening PFRS statement of financial
position would be dated January 1, 2021.
However, if the entity decided to present two-year
comparative information for 2020 and 2021, the
beginning of the earliest period for which the entity
should present full comparative information would be
January 1, 2020.
Opening PFRS statement of financial position
opening PFRS statement of financial position is the
statement of financial position prepared by a first time
adopter on the date of transition to PFRS.
- is the starting point for accounting in accordance
with PPRS. In preparing the opening statement of
financial position, an entity is required to:
a. Recognize all assets and liabilities required by
PFRS.
b. Derecognize assets and liabilities (not permitted by
PFRS.
c. Reclassify items that it recognized under previous
GAAP as one type of asset, liability or equity but a
different type of asset, liability or equity under PFRS.
d. Measure all recognized assets and liabilities in
compliance
Any adjustments required to present an opening
PFRS statement of financial position should be
recognized in retained earnings or if appropriate, in
another component of equity.
If the entity adopts PFRS for the first time in the
current year, the first PFRS financial statements
include the following:
1. Three statements of financial position at the end
of current year, at the end of prior year and at the date
of transition to PFRS
2. Two statements of comprehensive income for the
current year and prior year
3. Two separate income statements for the current year
and prior year
4. Two statements of changes in equity for the current
year and prior year
5. Two statements of cash flows for the current year
and prior year
6. Notes to financial statements including comparative
information
CHAPTER 31: SHARE-BASED PAYMENT

A share-based compensation plan is a
compensation arrangement established by the entity
whereby the entity's employees shall receive equity
shares in exchange for their
services or receive cash based on the price of its
shares.
Compensation plans are a common feature of
employee
The compensation plans are usually tied to
performance in a strategy that uses compensation to
motivate the recipients.
Share-based compensation plans are classified into.
a. Equity settled - The entity issues equity
instruments in consideration for services received, for
example, share options.
b. Cash settled - The entity incurs a liability for
services received and the liability is based on the
entity's equity instruments, for example, share
appreciation rights.
Share options are granted to officers and key
employees to enable them to acquire shares of the
entity during a specified period upon fulfillment of
certain conditions at a price.
specified
These options are conceived as additional
compensation on the part of senior officers and other
key employees.
Measurement of compensation
The compensation resulting from share options is
measured following two methods, namely:
a. Fair value method (Fixed) - means that the
compensation is equal to the fair value of the share
options on the date of grant.
b. Intrinsic value method - means that the
compensation is equal to the intrinsic value of the
share options. computed every year
The intrinsic value is the excess of the market value
of the share over the option price.
MV of shares.
- Intrinsic value method can be used only if the fair
value of the share option cannot be estimated reliably.
Recognition of compensation
(Accrual basis)
a. If the share options vest immediately, the employee
is not required to complete a specified period of
service before unconditionally entitled to the share
options. In this case, on grant date, the entity shall
recognize the compensation as expense in full
immediately.
b. If the share options do not vest until the employee
completes a specified service period, the
compensation is recognized as expense over the
service period or vesting period from the date of grant
to the date on which the options can first be exercised.
This approach is on the theory that the share options
are in recognition for services rendered between the
date of grant and the exercise date.
Note that before the exercise of the share options, the
share options outstanding account is reported as
component of share premium.
Thus, if the share options are not subsequently
exercised, the share options outstanding account shall
be adjusted and credited to share premium.
Acceleration of vesting
PFRS 2, paragraph 28, provides that if an entity
cancels or settles a grant of share options during the
vesting period, the entity shall account for the
cancelation or settlement as an acceleration of vesting.
a. The entity shall recognize immediately the
compensation expense that otherwise would have
been recognized for services received over the
remainder of the vesting period.
b. Any payment made to the employee on the
cancelation or settlement of the grant shall be
accounted for as the repurchase of equity interest,
meaning, deduction from equity.
In other words, if the payment exceeds the fair value
of the share options, the excess shall be recognized as
an expense.
If the share options are canceled or settled during the
period, it is as if the vesting date had been brought
forward and the balance of the fair value not yet
expensed is recognized immediately.
Any amount in excess of the fair value of the share
options already recognized is treated as expense.
Share appreciation right
A share appreciation right entitles an employee to
receive cash which is equal to the excess of the market
value of the entity's predetermined price for a stated
number of shares on settlement or exercise date.
- share appreciation right entitles the employee to a
cash payment equal to the increase in the price of a
given number of shares over a given period.
- share appreciation right is viewed as compensation
for services rendered.
- the entity shall recognize a liability because a share
appreciation right is actually an obligation - the entity
to pay cash in the future on exercise date. Simply
stated
a share appreciation right creates a liability.
Measurement of compensation expensed
The compensation is based on the fair value of the
liability at the reporting date and shall be remeasured
at every year-end until it is finally settled.
Any changes in fair value are included in profit or
loss.
- fair value of liability is equal to the excess of the
market value of share over a predetermined price for a
given number of shares over a definite vesting period.
Recognition of compensation
a. If the share appreciation right vests immediately,
the compensation is recognized immediately.
b. If the share appreciation right does not vest until
the employee completes a definite vesting period, the
compensation is recognized over the vesting period.
CHAPTER 32: NONCURRENT ASSET HELD
FOR SALE
PFRS 5, paragraph 6, provides that a noncurrent asset
is classified as held for sale if the carrying recovered
principally through a sale transaction rather than
continuing use.
The entity does not intend to use the asset as part of
the on-going business, it intend to sell and recover the
carrying amount principally through sale.
Conditions for classification as held for sale
1. The asset is available for immediate sale in the
present condition. In other words, the current
condition of the asset should be adequate to be
effectively "sold as seen".
2. The sale must be highly probable. The sale is
expected to be a "completed sale" within one year
from the date of classification as held for sale.
Measurement of asset held for sale
PFRS 5, paragraph 15, provides that an entity shall
measure a noncurrent asset classified as held for sale
at the lower of carrying amount or fair value less cost
of disposal.
PFRS 5, paragraph 25, further provides that a This is because the carrying amount shall be recovered
noncurrent asset classified as held for sale shall not principally through continuing use or the noncurrent asset
is to be used until the end of its economic life.
be depreciated
If the fair value less cost of disposal is lower than
carrying amount of the asset, the writedown to fair
value less cost of disposal is treated as an impairment
loss.
Subsequent increase in fair value
If subsequently there is an increase in the fair value less
cost of disposal, PFRS 5, paragraph 21, provides that an
entity shall recognize a gain but not in excess of any
impairment loss previously recognized.
Change in classification
PFRS 5, paragraph 27, provides that the entity shall
measure the noncurrent asset that ceases to be classified
as held for
sale at the lower between:
a. Carrying amount of the asset on the basis that the asset
had not been classified as held for sale.
b. Recoverable amount at the date of the subsequent
decision not to sell.
Presentation of asset classified as held for sale
A noncurrent asset classified as held for sale shall be
presented separately as current asset.
PFRS 5, paragraph 38, provides that if the noncurrent asset is
a disposal group classified as held for sale, the assets and
liabilities of the group shall be presented separately and
cannot be offset as a single amount.
The assets of the disposal group shall be described as
noncurrent assets classified as held for sale presented
separately as a single amount under current assets.
The liabilities of the disposal group shall be described as
liabilities directly associated with noncurrent assets
classified as held for sale presented separately as a single
amount under current liabilities.
Abandoned noncurrent asset
PFRS 5, paragraph 13, provides that an entity shall not
classify as held for sale a noncurrent asset that is to be
abandoned.